Describe and explain the relationship between expected inflation rates in two countries and their interest rate differential according to the PPP theory. What will be an ideal response? ANSWER Expected inflation is given by the following equation: Πe = (Pe – P)/P where Pe is the expected price level in a country a year […]
Many countries in sub-Saharan Africa have very low labor productivities in many sectors, for example in manufacturing and agriculture. They often despair of even trying to attempt to build their industries unless it is done in an autarkic context, behind protectionist walls because they do not believe they can compete with more productive industries abroad. […]
The current account can be defined as exports plus imports. Indicate whether the statement is true or false ANSWER FALSE
The figure above represents the demand and cost functions facing a Brazilian Steel producing monopolist. If it were unable to export, and was constrained by its domestic market, what quantity would it sell at what price? What will be an ideal response? ANSWER It would sell 5 (million tons) at a price of $8/ton.
Which of the following are true statements about IBFs? A) IBFs are subject to reserve requirements. B) IBFs are allowed to receive deposits from, and make loans to, nonresidents of the U.S. or other IBFs. C) IBFs are subject to interest rate regulations. D) All of the above. ANSWER B
Fiscal expansion under fixed exchange rates will have what temporary effect? A) the money supply will decrease. B) output will decrease. C) the exchange rate will increase. D) the exchange rate will decrease. E) there will be no effect. ANSWER D
Illustrate the effectiveness of monetary policy with fixed exchange rates. What will be an ideal response? ANSWER The required intervention to maintain the fixed exchange rate will undo any effect on income of an increase or decrease in the money supply. Illustrate by shifting LM curve and then explaining how intervention will return LM […]
It is still the conventional wisdom in the U.S. that compliance with NAFTA requirements is having a deleterious effect on U.S. highway safety standards, on U.S. pollution and other environmental standards, and on U.S. jobs. What facts would proponents of an expansion of NAFTA (e.g., to include all of Central and South American countries) need […]
Reform of a country’s trading system, including the reduction or elimination of trade barriers, is an example of A) an orthodox stabilization plan. B) a heterodox stabilization plan. C) economic populism. D) import substitution industrialization. E) structural reform. ANSWER E
If some industries exhibit increasing returns to scale in each country, we should not expect to see A) intraindustry trade between countries. B) perfect competition in these industries. C) interindustry trade between countries. D) Either B or C. ANSWER B
